LAWS3101 Income Tax Case Study
Integrity notice for the LAWS3101 Income Tax Case Study
The Integrity notice for the LAWS3101 Income Tax Case Study is available on the LAWS3101 course site (Assessment >> Income Tax Case Study). You must read the Integrity notice before commencing the Income Tax Case Study.
This is an individual assessment activity. Students must work alone and without the assistance or input of other students or other individuals.
Task description, Criteria & Marking
The Task description, and Criteria & Marking for this Income Tax Case Study are set out in section 5.5 in the course ECP. You are required to study these before commencing the Income Tax Case Study.
The Task description states that you will be required to undertake further research to prepare your answers to the Income Tax Case Study. To be clear: It is only necessary that you undertake research to find two sources and then to use these sources to prepare your answers. The names of these sources are provided as part of the Income Tax Case Study. You do not have to reference these two sources in your answers using the Australian Guide to Legal Citation or any other source referencing method. The remainder of the answers are based on the coursework that you must study from Topic 1 to Topic 8.
As this Income Tax Case Study focuses on Topic 8 Capital Gains Tax in Question 2, it is highly recommended that you watch the Week 8 and Week 9 lectures and that you reflect on the answers for Tutorial 7 and the Topic 8 Case studies in order to prepare your answers.
By submitting your answers to the LAWS3101 Income Tax Case Study, you pledge the following:
As a UQ student:
I acknowledge that academic integrity is a core value of The University of Queensland community.
I will be courageous in upholding the University’s values at all times, even when studying is difficult and no one else can see my actions. I will not give in to persuasive cheating messages or pursue unauthorised help, but rather seek help from trusted support sources/services.
I acknowledge that I am responsible for the consequences of my choices. As a student in this community I promise to complete all my assessment tasks, including exams online and my LAWS3101 Income Tax Case Study with academic integrity in mind, to be fair to my peers, show respect for my lecturers/tutors, and uphold the reputation of the University. I promise that I have successfully completed the UQ Academic Integrity Module before submitting my answers to the LAWS3101 Income Tax Case Study.
I am committed to sustaining an environment of honest and mutual trust, in which I can represent my own knowledge, skills and capabilities in my LAWS3101 Income Tax Case Study. I will strive for academic excellence through the authenticity of my study practices and assessment responses in my LAWS3101 Income Tax Case Study. Then I can be proud of my achievements and know I have completed all the requirements of my degree with integrity.
Income Tax Case Study assessment instructions continued next page
Assessment instructions to students
|Due date:||2 pm (14h00) on 14 May 2021|
|Instructions:||You must answer all of the questions in the Income Tax Case Study by typing your responses into one Microsoft Word document and adding this information at the start of your responses: Your last name, first name, student ID|
|Submission method:||Upload your single Microsoft Word document with your responses using the Income Tax Case Study Turnitin submission link available on the
course site: Assessment >> Income Tax Case Study
|Font size permitted:||10, 11, or 12 pt|
|Font type permitted:||Arial, Times new roman|
|Word limit:||The total word limit for your responses to the Income Tax Case Study is 1,300 (one thousand three hundred) words|
|What is included in the word limit count of your responses?||Everything. All headings, all numbers, all section and division references, all formulas, all calculations, all explanations, case law and reasons|
Total marks and Weighting of the Income Tax Case Study
Total marks = 20
Total weighting = 20%
QUESTION 1 5 MARKS
This question is about the ATO Decision impact statement on Greig v Commissioner of Taxation. This impact statement is dated 2 March 2020. You will be required to undertake research to find this impact statement and then to use it to prepare your response to this question.
You are required to:
Identify and present the factors from the decision impact statement that indicate that the taxpayer, Greig, acquired the shares in Nexus in a business operation or commercial transaction so as to engage the principle in Myer Emporium.
Note: In marking this question, half marks will be awarded to each relevant factor. Therefore, you should aim to identify and present at least ten factors.
Question 2 next page
QUESTION 2 15 MARKS
Jake Mustang is a high net worth Australian resident individual. He is aged 52 and he is single. Jake built a successful career as the owner-operator of a boutique property investment advisory firm in Melbourne, called Property Maximus Consulting. He started this business in July 2004.
These are the facts relevant to his 2020–2021 income year ending 30 June 2021:
Melbourne is hard hit during the COVID-19 pandemic. Melburnians spend eight consecutive months in lockdown. Business activities and property investments are lower than before the pandemic. As a result, Jake has a lot of free time on his hands to surf the internet and to look up old university friends.
Using Facebook, he reconnects with Louise McQueen, who he last saw in 1989 when they were both fulltime university students. As it happens, Louise is also single, living in Brisbane. When the lockdown ends in Melbourne, Jake travels to Queensland to have lunch with Louise. It is ‘love at first sight’ for Jake and Louise. A few months into their relationship, Jake decides to relocate to Brisbane permanently. He purchases a riverfront property in St Lucia on 1 March 2021, moving into this new home on the same day. He funds the purchase cost of this home from the cash proceeds arising from the following transactions:
Sale of his private home in Melbourne
Jake purchased this private home in the Melbourne suburb of Brighton on 19 October 1993, incurring the following costs on that day:
- Purchase cost of the property $135,000
- Transfer duties and legal fees $1,000
He puts this house on the market on 15 January 2021, which is the day on which he decides to permanently relocate to Brisbane to be close to Louise. As properties in Brighton are very expensive, it takes several months before Jake finds a buyer for this property. He eventually sells the property for $3 million on 1 June 2021. Jake pays the real estate agent who finds him the buyer $150,000 in sales commission on 1 June 2021.
In total, Jake owns the Brighton home for 12,645 consecutive days. Over this period, Jake does not live in this home during the following periods:
|1 July 2000 to 30 June 2004||Jake rents out his Brighton home to long term tenants while he lives in rental accommodation in Sydney due to his fulltime employment with Deloitte Sydney at that time. As at 1 July 2000, the Brighton home is valued at $1 million|
|1 March 2021 to 1 June 2021||When he lives in his new home in St Lucia, and which he also treats as his main residence from 1 March 2021|
Question 2 continued next page
Taxable income from Property Maximus Consulting
This is the calculation of the taxable income arising from the business operations of Property Maximus Consulting for the 2020–2021 income year ending 30 June 2021:
|Consulting income, s 6-5 ITAA97, income from business||$1,395,000|
|Staff salaries, s 8-1 ITAA97||($235,000)|
|Staff superannuation guarantee contributions, s 290-60 ITAA97||($22,325)|
|General business expenses: rent, telephone charges, stationary, s 8-1 ITAA97||($265,000)|
Sale of Property Maximus Consulting
When Jake relocates to Brisbane, he decides to sell Property Maximus Consulting after accepting an offer of employment from Deloitte Brisbane that will commence on 1 July 2021. He finds a buyer for Property Maximus Consulting and they enter into a sale agreement on 30 June 2021 on the following terms and conditions:
- The buyer agrees to pay Jake a cash amount totalling $7 million to buy the business. This amount represents the value of the goodwill in Property Maximus Consulting as at 30 June 2021
- Jake agrees to enter into a two-year restraint of trade agreement, effective from 30 June 2021, which prohibits him from starting a new property investment advisory firm in Melbourne. The
buyer agrees to pay Jake $2 million to enter into the restraint of trade
- The buyer agrees to incur all of the legal fees associated with the sale agreement.
Jake owns shares in an ASX listed company called Total Wealth Ltd. Jake originally purchased 100,000 shares in Total Wealth Ltd in January 2003 at a cost of $6 per share.
In February 2021, the company writes to its shareholders, advising them it was offering to buy back 10% of their shares for $9.60 per share in an off-market share buy-back scheme. The buy-back price was to include a franked dividend of $1.40 per share, and each dividend was to carry a franking credit of $0.60.
Jake applies to participate in the scheme after studying the income tax implications of this off-market share buy-back scheme using the ATO’s ‘Personal investors guide to capital gains tax 2020’ that includes a worked example. Using this guide, Jake understands that by agreeing to participate in the share buy-back scheme, he will dispose of 10% of his shares back to the company.
Total Wealth Ltd approves the share buy-back scheme in April 2021 on the terms set out in the earlier letter to shareholders, complying with all of the relevant ASIC regulations and with the requirements of the Corporations Act 2001 (Cth).
Question 2 continued next page
The share buy-back transaction is executed on 30 June 2021 when the market value per share is $10.20 (if the share buy-back did not occur and was never proposed). Total Wealth Ltd formally writes to Jake and the other shareholders who participate in the share buy-back scheme to inform them of this market value.
Total Wealth Ltd deposits all of the funds relevant to the transaction into Jake’s nominated bank account on 30 June 2021.
Other information relevant to Jake’s 2020–2021 income year
As at 1 July 2020, Jake has unapplied capital losses carried forward from previous income years totalling $2,800,000 ($2.8 million). These capital losses arose when Jake sold his share investment in a private company at a loss.
You are required to:
Advise Jake on the income tax implications of all these events and transactions. To do so, you have to prepare and present the calculation of Jake’s taxable income for the 2020–2021 income in a manner that minimises his taxable income. Show all your calculations and provide reasons for your answer. Your answer should reference relevant sections and divisions of the Income Tax Assessment Acts.
Note: In marking this question, half marks will be awarded to each relevant part of the answer. Therefore, in preparing your answer, you should follow the same approach as that adopted in case studies, in-class examples and in tutorials.
END OF INCOME TAX CASE STUDY